1 Introduction

Martin Dairy Creek used to be a weed-lined, straight-as-an-arrow ditch, passing through pastures and farms in rural North Carolina. The channel itself was a few feet wide and a couple feet deep, and rarely carried more than an inch or two of water, situated as it was in the headwaters of the watershed. The channel had been straightened decades earlier and its banks had since begun to erode, creating mixtures of wide, raw banks along some reaches and large silty bars on the streambed in others. The constant erosion and deposition of sediment degraded the habitat and made life challenging for any fish or aquatic insects that tried to make a home in this typical rural American waterway.

Then in 2017, bulldozers arrived. Martin Dairy Creek’s banks were stripped bare of vegetation to make room for a platoon of big yellow machines that set to work remeandering the creek. The channel was reformed to be shallower and slightly wider, with near-perfectly regular meander bends. Small, adolescent trees were planted in carefully spaced sequences and patterns along the creek’s banks, each the same height and age. A series of nearly identical riffles were constructed, each with well-sorted, well-placed gravel and cobble. A mostly innocuous, occasionally rambunctious rural creek had been transformed into an elegant, symmetrical work of engineering. Like a road or a bridge, this creek was now very clearly designed and constructed (figure 1.1).

On the opposite side of the planet, in Australia, sits the terrestrial equivalent of this carefully rationalized aquatic system. This particular landscape had previously been a mixture of forest and farmland. Now, however, there are rows upon rows of trees, mainly eucalyptus, but also large uniform expanses of pine trees. Each tree is the same age, having all been planted simultaneously. Each tree is equidistant from its neighbors. This forest did not accumulate over time by natural process, or by piecemeal, uncoordinated decisions of various landowners; like the stream in North Carolina, this Australian forest was planned, designed, and constructed.1

There is something not quite natural about these ecosystems and their clean, symmetrical forms. There is no confusing the perfectly proportioned stream with its unruly, unmodified kin, nor the linear rows of trees with an old growth forest (though not all carbon forests are so obviously designed, there are no rules that encourage more natural planting plans). In each case, these ecosystems have been made visually coherent and biophysically distinct from their surroundings. They have pieces that are comparable to other systems—trees, riffles, meander bends—and individually make sense, but are startlingly artificial when combined. They are now strange ecosystems to behold.

Reconfiguring ecosystems to suit human desires is not new. What is newer is that each of these systems was modified under the banner of ecological restoration; they were “restored.” Humans intervened in an ecosystem they considered degraded in an attempt to return it to health. And what is really new, only a few decades old, is the rationale for restoring these disparate systems: “the market.” Like a rapidly growing number of ecosystems around the world, they were restored to create a novel type of commodity. The buyers of these odd ecosystems, however, were not interested in owning a wiggly creek or a linear forest; in most cases these individuals or organizations never set eyes on the ecosystems they purchased. The buyers of these ecosystems only did so because they were required to participate in a particular environmental market, making them participants in a broader, nascent restoration economy.

Buying and selling ecosystems through environmental markets has been the subject of volumes of research. Such markets have drawn advocates and critics, engaged in debate ranging from appropriate treatment of economic minutiae to whether markets and the burgeoning restoration economy can save us from the impending catastrophe of climate change.

But the debates have largely sidestepped the question of just what kind of landscapes these new markets might produce. Behind every environmental market transaction there is an ecosystem: an actual place whose biophysical conditions are changed when capital changes hands. These ecosystems are the manifestations of environmental markets. These ecosystems—with all their potential for artificiality and contrived nature—bear the fingerprints of the market’s invisible hand; they are the manifestation of the restoration economy.

Selling Nature in Order to Save It

The environmental movement has long worked to protect nature from the most destructive impulses of capitalism. Whether by setting aside protected areas like national parks to be preserved from human disturbance, moderating the use of timber or fisheries to produce sustainable yields, or restoring ecosystems to undo anthropogenic harm, the goal of environmental conservation often has been to force the invisible hand of the market to squeeze the natural world a little less tightly. Now, market forces—channeling capitalism, or bending it at least—are increasingly seen as the best, perhaps only way to save nature.

The idea that traditional forms of environmental regulation are insufficient, and that we should sell nature in order to save it, began gaining traction in the 1980s. It is now firmly, if surprisingly, established in environmental policy circles, promoted by presidential administrations as otherwise distinct as those of Obama and Trump. The notable early successes of the Clean Water Act in improving water quality in places like Cleveland, or of the Endangered Species Act in bringing iconic species such as bald eagles back from the brink of extinction are often dismissed as costly and inefficient. In their place, a broad range of market-based policy approaches have been proposed, from cap and trade to eco-labeling to impact investing. These quite different policy frameworks share a core claim that would have been anathema to most environmentalists even twenty years ago (and still is to many): the path forward is not to protect nature from capitalism, but to tie the two together as tightly as possible. The approaches of major environmental organizations are harbingers of this change: the World Wildlife Fund and The Nature Conservancy (TNC) have major programs now on corporate engagement, environmental markets, and impact investing, with TNC going so far as starting its own investment banking operation—NatureVest.

This is a momentous shift in thinking about the environment, and it has been hotly debated in the United States and internationally. Rather than refight those battles, this book is centered on a more pragmatic pair of questions:

What does it take to put market-based approaches into practice? And what are the tangible consequences for ecosystems of doing so?

To answer these questions, we focus on one of the oldest and most robust environmental markets: stream mitigation banking under the Clean Water Act. While seemingly mundane, or even innocuous, stream mitigation banking is often held up as an exemplar for how markets can be created, adapted, and scaled in terms of economic and ecological impact.

Markets for Ecosystem Services

Ecosystem services is a catchall term for the things nature provides society free of charge, such as the crop pollination provided by bees, or wetlands’ utility as giant natural water filters. Many environmental markets focus on putting a monetary value on those services, and then creating the conditions that make it possible to sell them. The many varieties of what are referred to as markets for ecosystem services (MES) share a common set of claims: (1) growing human needs for housing, food, transportation, employment, and so on, make at least some amount of ongoing environmental damage inevitable, and given that we cannot stop development; (2) the best approach is to stop trying to prevent negative environmental impacts and instead require compensation for them. Imagine, for instance, a proposed factory that would provide much-needed new jobs, but would have the environmental consequence of paving over a wetland if allowed to be built on the proposed site. Instead of insisting that the factory owner find another site, or cease the project altogether, an MES approach would require the owner to quantify the ecosystem services lost through wetland impacts (known as debits), and then to buy an equivalent or greater amount of the same ecosystem services (known as credits) produced by restoring an equivalent degraded wetland elsewhere. Effectively, MES are commodity markets, although the commodity for sale is not a crop or production input, such as grain or timber, but is instead the service provided by a particular ecosystem.

We describe such markets in detail in chapter 2, but for now the key thing to note is that while calculating debits and offsetting them through the purchase of credits sounds straightforward, it is remarkably complex in practice. Making a standardized, saleable commodity out of complex, messy, above all interconnected ecosystems and their services turns out to be substantially harder than making a commodity out of trees or wheat. For example, how can we be sure that the particularities of the wetland to be restored are equivalent to the unique characteristics of the wetland that would be lost at the proposed factory site? And how do we cope with the myriad uncertainties of whether we can even restore wetlands in general, let alone restore the functions lost from this particular wetland in this particular place?

These are thorny questions. Each market grapples with them in different ways, from the simplified approaches used to trade endangered species habitat to the almost unwieldly complexity of carbon credits (both discussed in more detail in the next chapter). What is perhaps most notable—given the common portrayal of MES as a leap forward in achieving environmental goals—is how little we know about how these projects are put together in practice and what their outcomes actually are. Most pointedly, what kinds of ecosystems do MES produce? To answer that question, this book presents a detailed empirical study of the intertwined physical and social processes at work in a specific ecosystem service market from conception to construction to implementation, moving from ideas of what an ecosystem should be to what actually exists in the ground when a market-based, restored ecosystem is constructed.

Stream Mitigation Banking

The specific market that we examine is for stream ecosystems, the industry, practice, and political economy of which are subsumed under the phrase stream mitigation banking. The 1972 Clean Water Act (CWA) was intended to protect the chemical, biological, and physical integrity of the “waters of the United States.” A particular part of the CWA—Section 404—requires that anyone physically impacting a water of the United States, including streams, must get permission from the federal government to do so: they must receive a 404 permit. While Congress likely assumed that the regulatory agencies implementing the CWA—the U.S. Army Corps of Engineers (Corps of Engineers) and the Environmental Protection Agency (EPA)—would deny many permits to prevent harm to these ecosystems, the vast majority of permits have been granted, as the agencies have yielded to the political costs of limiting development, be it new homes, factories, or roads.

Rather than deny permits altogether to protect the nation’s freshwater ecosystems, the agencies arrived at a workaround known as the mitigation sequence: avoid impacts, reduce impacts, and only then compensate for any unavoidable impacts. In practice, however, it turned out to be far more politically palatable to let developers offset their project’s impacts on a stream by restoring a comparable stream elsewhere than to ask them to rework the project to avoid or reduce its impacts altogether. While developers initially did the restoration themselves, a new approach arose in the late 1990s—stream mitigation banking. Under this system, an entrepreneur would speculatively restore an ecosystem and generate a “bank” of stream credits. These credits could then be sold to developers to fulfill the permit requirements set by the regulators—the Corps of Engineers and the EPA. In theory, as more mitigation banks emerged in an area, developers would have multiple bankers competing for their business. This competition could thus create market-like conditions for stream restoration credits.2

Over a two-decade period—from 1998 to 2018—the regulations and practice of stream mitigation banking evolved from a series of isolated, bespoke, one-off curiosities to a well-regulated industry and the beginnings of a “restoration economy.” The first stream mitigation bank was approved in 1998 in North Carolina. A wide variety of developers subsequently went to the stream market—from shopping mall developers to state highway departments to public utilities and airports—and as a result more than one thousand stream mitigation banks were in operation in forty states as of 2018.3

Overview of the Book

Social scientists have studied (and often critiqued) the underlying rationales of market-based environmental management; for their part, biophysical scientists have studied (and, likewise, often critiqued) the underlying assumptions of ecological restoration, most typically by examining the failures of particular projects. That has left unexamined everything in between. What does it take to go from the idea of MES to actual functioning markets? Just as important, what are the specific environmental consequences of the markets once created? What is actually constructed on the landscape as the end result of an ecosystem service market, and what decisions had to be made along the way in order for it to be built that way? Tracing the path of a particular market allows us to understand the interrelations of policies, science, concepts, personal relationships, engineering, and standards of practice that underlie any environmental regulatory market.

This book is about that path, from start to finish. By tracing the process of creating an ecosystem service market from conceptual beginnings to physical manifestations, we can begin to understand its fingerprint on the landscape. We trace the roots of stream mitigation banking, the challenges of balancing ecological and economic concerns, and the physical consequences of how we have done so to date. The history and evolution of stream mitigation banking are particular, but not unusual; all environmental markets will have a similar genesis, evolution, and implementation, contorting science, policy, and politics to create a market and the commodities for sale within it. Although market-based environmental approaches, including stream mitigation banking, are thus far relatively minor in global economic terms, their potential impacts are deeply consequential: environmental policy shapes the landscapes around us and determines the long-term prospects of vulnerable species, ecosystems, and human communities. As markets have become a preferred regulatory instrument for environmental policy, their actual operation and effect, rather than theoretical underpinnings, becomes critical to society.

The chapters in this book are loosely grouped into three sections. The first (chapters 2, 3, and 4) considers what a market for ecosystem services is and does, and how one was created for streams. The second (chapters 5 and 6) draws on our fifteen years of social and physical fieldwork across several states, but primarily in North Carolina, to explain the various parties involved in making stream mitigation banking function, and how they go about accomplishing this. The final section (chapters 7 and 8) describes what we know about the actual environmental consequences of stream mitigation banking, particularly whether the market that was created delivers on ecological promises and expectations.

More specifically, chapter 2 provides an overview of MES in theory and practice, focusing on the challenges that all ecosystem service markets face in addressing what we consider to be the two key negotiated elements of any such market: reconciling equivalence and uncertainty. How do MES policy-makers balance the conflicting goals of economic and ecological functionality? How does that vary across different kinds of ecosystem markets, whether carbon markets or habitat for endangered woodpeckers? Chapter 3 introduces readers to the history of stream restoration, and the relevant science and engineering necessary for any ecosystem service market intended to work in streams. The 150-year-old practice of stream restoration has shifted over time from attempting to improve habitat within streams to creating entirely new stream channels. Why did people begin intervening to improve stream ecosystems, and how have those improvement goals changed? Chapter 4 plunges into the history of market-based approaches to environmental management, from the work of John Dales in the 1950s to the incorporation of such approaches into federal policy. How did the idea of selling nature in order to save it gain such momentum, and how was it converted from idea to policy and practice?

Chapter 5 introduces the cast of characters in the stream mitigation banking community, from the federal agency staff members who set up and regulate the mitigation banking market to investors who provide the funding to initiate a bank. How do dynamics among these players influence mitigation policy and practice, and shape how they address concerns about uncertainty and equivalence? Chapter 6 walks through mitigation banking in practice, highlighting the surprising complexity of this seemingly simple trade of debits and credits. Focusing on the history of a particular North Carolina stream mitigation bank, we ask how do bankers, regulators, and the other key actors keep a functional market for stream credits running?

Chapter 7 investigates the physical consequences of how mitigation actors, policies, and practices in North Carolina resolve the tensions between the economic and ecological goals of stream mitigation. Through a detailed set of geomorphic (i.e., physical) surveys of streams in North Carolina, including those restored under the auspices of mitigation banks, we quantify the actual physical imprint of this ecosystem service market on the fluvial landscape (the hydroscape), and thus begin to understand its peculiar biophysical consequences. Finally, in chapter 8 we return to our initial questions about the environmental implications not only of stream mitigation banking, but of MES more broadly. We argue that markets for ecosystem services have not delivered on the conservation goals of their advocates, and thus need to be radically reconfigured either to strengthen equivalence between destroyed and restored ecosystems, producing narrow but more certain ecological improvements, or to embrace the chaos and dynamism of natural ecosystems, producing far less certain, but potentially much better ecological results.

We turn now to chapter 2, and an overview of the goals and challenges of markets for ecosystem services.